By Wang Lan (China Daily)
Updated: 2008-01-16 09:08

Smaller alumina producers have raised prices by 7 percent, triggered by an inventory shortfall in the global market and rising demand in the lead-up to Spring Festival.

Analysts said the rise is in line with the 19.7 percent price increase for imported alumina to 4,550 yuan per ton over two months. Alumina is the raw material used for electrolytic aluminum, the basic material in aluminum-based products for construction and auto industries.

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Aluminum Corp of China Ltd, or Chalco, the nation's largest producer of the metal, is expected to increase its alumina price soon.

"We expect Chalco to raise the alumina price in the next one or two weeks, following the price hike by smaller producers," said Li Jingyuan, a non-ferrous metals analyst at Haitong Futures Co in Shanghai.

Chalco raised the alumina price in November to 3,800 yuan per ton from 3,500 yuan, and again in December to 4,200 yuan.

"Small producers with limited production capacity are more sensitive to price fluctuations than large producers like Chalco," said Li Jingyuan at Haitong Futures.

"They (small producers) are always the quickest to respond to changes in market supply and demand," Li said.

Industry experts said the price increase would put pressure on many aluminum processors because much of their profit would be wiped out by rising material costs in a relatively weak market for finished products, as reflected in declining Shanghai aluminum futures prices.

The most actively traded aluminum futures on the Shanghai Futures Exchange closed at 18,200 yuan per ton yesterday, down 0.33 percent from the day before. Shanghai aluminum has dropped a total 2.3 percent over the past two months.

Industry analysts said strikes in Guinea and declining alumina production in Australia and the US also helped push up domestic prices, because a production drop and increased domestic demand is expected to widen the supply gap.

"Domestic demand is rising because aluminum producers are increasing their stockpiles for the coming Spring Festival," said Liu Minda, a non-ferrous metals analyst at Huatai Securities in Nanjing.